This is common question from foreign lenders, investors, insurers, and companies negotiating contracts with Brazilian counterparties have.
Common sense is to elect the foreign entity’s law and jurisdiction. By having the agreement interpreted by the laws and jurisdiction of their own country, foreigners tend to feel more comfortable and secured.
However, this may not be the best legal strategy, as follows:
1. For commercial contracts: if the Brazilian company fails to pay the purchase price, or provide essential specifications of the product causing damages to consumers outside Brazil, how would the foreign party seek its rights against the Brazilian supplier?
2. For finance contracts: if the Brazilian borrower fails to pay the loans, how would the foreign party seek its rights against the borrower/guarantors?
Using the common practice (foreign court and law), they would have to file a lawsuit in offshore to collect the debt/obligation in the foreigner’s chosen home jurisdiction. The experience with international litigation shows that just to serve the process would require approximately 2 years to be complete.
But, if at the time of entering the agreement the foreign investor, lender or company had chosen Brazilian Law and the court of the company’s headquarters in Brazil, what would have changed? The answer is everything. The collection/execution suit would have been proposed in Brazil, at the debtor and guarantors’s jurisdiction, where most of their assets are probably located. Result: a drastic change in the chances of success and certainly a much cheaper and timely execution.
Because of this, choice of court and law for international agreements should always be a key piece of negotiation. We suggest that the choice be made not by common sense, but by taking into consideration real life situations that may occur.
In case of Brazil, if you are investor, lender, insurer or a company doing commercial business, always consider electing Brazilian law and courts to enforce your rights if there is a default by the Brazilian counterpart. There is an extensive list of cases evidencing such approach as the one that results in better recovery success rate.